The measure

Three anti-avoidance measures have been introduced to counteract certain complex schemes used by banks and financial institutions which were designed to increase double relief for foreign tax suffered. The three measures are:

• Ensuring that a person may only deduct foreign tax where that person has included the foreign tax in his taxable income (ie they are taxing gross rather than net income prior to relieving the foreign tax);
• Amendments to the double tax relief anti-avoidance rules to tighten the definitions of certain prescribed schemes in Schedule 28AB ICTA1988; and
• Clarification that relief for foreign tax is available only if the gross amount (rather than net amount) of a dividend or manufactured overseas dividend is included in taxable income prior to the relief for foreign tax being given.

Who will be affected?

Taxpayers using avoidance schemes to receive relief for foreign tax where they have not suffered the cost of the foreign tax.

When?

Applies to foreign tax paid or payable after 1 April 2010 for corporation tax purposes, and 6 April 2010 for income tax and capital gains tax. It also applies to manufactured overseas dividends paid or treated as paid 21 days after 24 March 2010.